Accommodation, Agents, Banks, and Fraud

Question 1

Accommodation

Answer 1

• Cosignor

- One who signs the instrument in any capacity for the purpose of lending his name to another party to the instrument

Question 2

Collection Guaranteed Clause by Accommodating Party

Answer 2

Means that the signer agrees that she will be liable on the instrument only if:

1. Execution of judgment against other party has been returned unsatisfied
2. Other party is insolvent or in insolvency proceedings
3. The other party cannot be served with process, or
4. It is otherwise apparent that payment cannot be obtained from the other party

In the end creditor can still come after accommodating party

Question 3

Signature by Agent

Answer 3

Jane - Employee Software Co. - Employer
Who’s liable?

“Software Co.” - Jane? No Software Co.? Yes

“Software Co., by Jane Doe, President”
- Jane? No Software Co.? Yes

“Jane Doe, President” - Jane? No (But dangerous! Parol evidence allowed so long as it’s not a HDC without notice) Software Co.? Yes

“Jane Doe” - Same as above

Question 4

Properly Payable Rule

Answer 4

The bank must pay out the customer’s money only if it follows the customer’s orders exactly. If it does not do so, it must recredit the customer’s account.

Question 5

When Checks Should be Presented

Answer 5

An endorser is discharged unless the check is presented for payment or given to a depository bank within 30 days after the day indorsement was made.

*Checks are usually “stale” after 6 months. The bank may pay, but isn’t obligated to pay.

Question 6

Wrongful Dishonor

Answer 6

• A bank is liable to its customers for damages caused by wrongful dishonor of an item
• Limited to actual damages proved and may include damage for arrest or prosecution or other consequential damages

Question 7

Stop Payments

Answer 7

Customers have the right to stop payments. Bank will be held liable for paying what should be a stopped check. Though must show an actual loss to recover.

• Must give:
  1. Describe the item with “reasonable certainty” - a reasonable prudent banker with that information should be able to find the check, and
  2. Order must be received at a time and in a manner that affords the bank a reasonable opportunity to act on it.

WRITTEN - Same as above, but lasts 6 months

Question 8

Forged Endorsement Rule

Answer 8

This rule validates the forged endorsement of the payee’s name where the maker or drawer has been duped by an imposter to issue the instrument.

X (Drawer) -> Y (Payee - only Y is actually M). M takes check to bank after indorsing with “Y.” Bank cashes check. X claims “properly payable rule” entitles her to payback! NO!

Question 9

Transfer Warranty

Answer 9

Each party that transfers an instrument and receives consideration warrants that:

1. They’re entitled to enforce the instrument;
2. That all signatures are authentic and authorized;
3. The instrument has not been altered, and
4. No defense or claim of any party is good against warrantor;
5. The warrantor has no knowledge of any insolvency proceeding that has been instituted against the maker, drawer, acceptor, etc.

Question 10

Presentment Warranty

Answer 10

The party obtaining payment and previous transferors warrant that:

1. They’re entitled to enforce,
2. The instrument is not altered, and
3. They have no knowledge that drawer’s signature is unauthorized.

Question 11

Restrictive Endorsement

Answer 11

Any other language added to an endorsement. Example: Conditions (although conditions aren’t allowed); trust indorsements, For Deposit Only, Pay any bank, etc.

Note: “For Deposit Only” probably won’t be enforced against a bank because it is too difficult for a bank to check for this.

Question 12

Forged Drawer’s Signature

Answer 12

Forgery of drawer’s name does not break the chain of title and, thus, subsequent transferees may qualify as holders. This is because the forgery operates as the genuine signature of the forger.

Question 13

Impostor Rule

Answer 13

This rule validates the forged indorsement of the payee’s name where the maker or drawer has been duped by an imposter to issue the instrument.

X (Drawer) -> Y (Payee - only Y is actually M). M takes check to bank after indorsing with “Y.” Bank cashes check. X claims “properly payable rule” entitles her to payback! NO!

*Be careful who you deal with! Bank is protected!

Question 14

Fictitious Payee Rule

Answer 14

If the drawer, maker, or other person whose intent determines to whom an instrument is payable does not intend (at the time the instrument was issued) for the person to have any interest in the instrument, or if the person identified in the instrument as the payee is fictitious, then an indorsement in the name of the payee is effective.

A (treasurer of Company) writes $500 check drawn payable to Y. X doesn’t intend Y to get proceeds, indorses check with “Y,” cashes check, and skips town. Is bank liable? No - It doesn’t have to recredit Company

Question 15

Negligence Rule

Answer 15

A person whose failure to exercise ordinary care substantially contributes to an alteration or forged signature on an instrument is precluded from asserting the alteration or forgery against a person who in good faith paid the instrument or took it for value or for collection.

Question 16

Bank Statement Rule

Answer 16

A customer must exercise reasonable promptness in examining the statement or the items to determine whether any payment was not authorized. If the bank can show that it suffered a loss by reason of the customer’s failure to examine, it doesn’t have to pay.

*GA version of UCC, a customer is precluded from asserting an unauthorized signature or any alteration on the face of the instrument if he doesn’t notify the bank within 60 days after the statement or item is made available to the customer.

Question 17

Statute of Limitations for Notes and Drafts

Answer 17

3 years - Unaccepted drafts (clock starts at presentment)

6 years - Notes payable at a definite time (clock starts at time of payment due)

20 years - GA SOL on sealed instruments (governed outside the UCC)